Stan Weinstein's Stage Analysis

[isatrader]

UK Halifax House Price Index

During the Q&A with Weinstein last month, Stan confirmed that Stage Analysis can be used on economic data. However, he said that as it is lagging it shouldn't be used as part of our "weight of evidence", and should be considered separately.

So today I want to show the UK Halifax House Price Index charts (non seasonally adjusted), as it's of particular interest to me living in the UK.

Attached are two charts, one long term that shows data back to 1983 and the second chart a closer view of the last eight years, which shows that the UK housing market has moved into early Stage 2A in the last few months.

 

[Tryst]

Thanks for the charts, isatrader.

Just a quick question on this, why isn't the horizontal resistance line taken from 170,000 in 2010 to confirm a stage 2 breakout?

Also, if the economic charts have lag, what are the underlying indicators/charts that preclude this chart?

 

[isatrader]

Just a quick question on this, why isn't the horizontal resistance line taken from 170,000 in 2010 to confirm a stage 2 breakout?

The horizontal line I've drawn is to mark the swing high to identify the Stage 2 breakout level. As when looking for the Stage 2 breakout level, I look to identify the top of the Stage 1 range first and so in this case, when price moved above the flattening 30 month moving average in the summer of 2011 it moved into early Stage 1A. It then quickly reversed back below the 30 month moving average and so that became the swing high to mark the top of the Stage 1 range. Price declined until December 2011, where it put in a major swing low and so you would mark that as the bottom of the Stage 1 range imo. So from that swing high and swing low, you now have a defined Stage 1 range, which the price then moved around in for the next two years until April this year when it broke above the 2011 swing high and the 30 month moving average turned higher, and hence moved into early Stage 2 - which we call Stage 2A.

The 170,000 zone is the first major resistance to be aware of, and so if for example this was an average stock instead; you'd expect it to take some time to break through that level. However, the strongest stocks will ignore the resistance and move straight through - which is why the investor method suggests putting on a half position at the Stage 2A breakout.

As this chart is of a housing index though, I wouldn't expect it to act like a stock as it takes a long time to buy and sell houses, and so I think the most important thing to take away from the chart imo, is that price is now strongly above a rising 30 month moving average and so is the strongest it's been in the last 5 years.

Also, if the economic charts have lag, what are the underlying indicators/charts that preclude this chart?

Tom McClellan spoke about this only this week as he's done a study that suggests that lumber sales lead the house price index by around 1 year in the USA, as wood is a major building material in the US unlike the UK. So I don't know of any leading indicators in UK, but lumber is supposedly useful for the US housing market.

 

[Tryst]

thanks for the reply, isatrader.

This chart, UK Halifax House Price Chart (symbol: HHPI) is a nightmare to find in charting software. Not even able to find it in ProRealTime Your Mac chart software does seem to cover everything!

A follow up question to your stage comments in your last post...

So is one of the key things to identifying a stage one is the flattening out of the 30 week MA first and then a price spike above this (which will then define your stage 1 range)?

Is it possible for the subsequent swing up to go higher than the first swing high after the flattened 30 week MA? If so, I guess you just draw horizontal approximate ranges at the top and bottom, or do you actually move the horizontal lines each time there is a new extreme swing high and low within stage 1?

 

[isatrader]

A follow up question to your stage comments in your last post...

So is one of the key things to identifying a stage one is the flattening out of the 30 week MA first and then a price spike above this (which will then define your stage 1 range)?

No, the 30 week simple moving average does not have to have flattened out for it to start forming into Stage 1, that comes later during Stage 1 in most cases imo. But you do want to see the 10 week MA (50 day MA) flattening and turning up with price trading above or around that. Stage 1 and Stage 3 can both be hard to define sometimes until they are almost complete, and so you need to look for signs of improvement in the relative performance versus the market, less volume on the down weeks, and one thing I look for personally for early Stage 1 is for a weekly close above the 30 week weighted moving average and for that to turn up, which is what the green and red strip below the price action on my charts is for.

Basically you want to start seeing an improvement and not just in the price action. So you need to look also at the shape of the moving averages, relative performance and volume.

Is it possible for the subsequent swing up to go higher than the first swing high after the flattened 30 week MA? If so, I guess you just draw horizontal approximate ranges at the top and bottom, or do you actually move the horizontal lines each time there is a new extreme swing high and low within stage 1?

Hopefully this isn't confusing, but the breakout line doesn't have to be a horizontal line. If, for example, you have a previous close by swing high to the recent swing high that you've identified to mark the top of Stage 1 range, then you can draw a trendline between those peaks to give you a slightly earlier breakout level. But a horizontal line is obviously a truer breakout level.

During Stage 1, you can get a number of false breakouts above the initial swing high that you've identified as the top of the Stage 1 range, especially on a daily chart. So, it's key to watch for a weekly close above that level for more confirmation, as you'll often get daily closes above it that then fall back into the range in the following days. So I don't believe there's any strict rules for this, and you may want to expand your Stage 1 range to the new swing high when this happens if it's a clear swing high, but personally if the weekly close doesn't break the original swing high, then I stick with that still, but that's just my preference.

So to clarify, Stage 1 ranges are not always clear until they are nearly complete, and the range can change if you get false breakouts. It's always a judgement call and takes time and practice to learn to identify, as do the other Stages.

 

[Tryst]

great reply isatrade, much appreciated.

I did wonder what those green/red bars was in your chart. Did you program this indicator yourself of is it an in-built one?

 

[isatrader]

I did wonder what those green/red bars was in your chart. Did you program this indicator yourself of is it an in-built one?

I programmed it in as is very simple. Below is the code for ProRealTime if you are using that. All you have to do is click on the indicators button and then create a new indicator.

Week30WMA_Rising

a=WeightedAverage[30](close[0])
b=WeightedAverage[30](close[1])

IF a > b THEN
Result=1
ELSE
Result=0
ENDIF
RETURN Result AS "Week30WMA_Rising"

Week30WMA_Falling

a=WeightedAverage[30](close[0])
b=WeightedAverage[30](close[1])

IF a < b THEN
Result=1
ELSE
Result=0
ENDIF
RETURN Result AS "Week30WMA_Falling"

And here's the settings to copy. You just have to put the two indicators in the same window and change the style to histogram and colour it up.

 

[Tryst]

Thanks isatrader. I'll plug these into RealTimePro tomorrow morning when I am the laptop and let you know how I get on. Thanks again

 

[Tryst]

isatrader, those indicators on ProRealTime worked like a charm - thanks

Having trouble with ProRealTime at the moment in that the MA's I assign to a daily chart are then used on the weekly. For example, setting a 50, 150, 200 MAs on the daily means that when I switch to weekly, I get weekly 50, 150, 200 MAs. Which isn't right. I'd like separate MAs on the weekly, 10 and 30. I've contacted ProRealTime support on this.

 

[isatrader]

Having trouble with ProRealTime at the moment in that the MA's I assign to a daily chart are then used on the weekly. For example, setting a 50, 150, 200 MAs on the daily means that when I switch to weekly, I get weekly 50, 150, 200 MAs. Which isn't right. I'd like separate MAs on the weekly, 10 and 30. I've contacted ProRealTime support on this.

Attached is a screenshot of the setup I use in ProRealTime, and I've highlighted two areas with red circles. The first one is the new chart button. Click on this and add a second chart. It doesn't matter what ticker you select.

Then with the second chart open click on the link icon which I've highlighted at the bottom of chart and link the chart to the default chart you already have open.

This will change the chart to same ticker as the default chart, but now when you click on a different stock in the list both will change together. You should now set these two charts up side by side to show a weekly and daily view with the correct settings for each. As having both the weekly and daily view visible at the same time makes identifying the Stage much easier.

Once you have your charts setup how you want them go to the templates menu and save a new template set. You can create multiple template sets, so you can have many different chart setups that you can then view with a single click.

I hope that helps.

 

[Tryst]

Thanks, isatrader. I took me a bit of time as that new chart button you highlighted isn't on my instance of ProRealTime (maybe its not there on PC). I used the new chart button beside the security in the list view.

Thanks again, isatrader.

 

[isatrader]

UK FTSE 350 Stocks and Sectors Relative Performance

Below is the updated the weekly FTSE 350 stocks and sectors relative performance tables

FTSE 350 Sectors by Overall RS Score



Top 50 FTSE 350 Stocks by Overall RS Score



Also attached below is the biggest moving FTSE 350 stocks since last week by their Mansfield Relative Performance figures.

FTSE 350 Gainers



FTSE 350 Fallers



To view the entire FTSE 350 stocks in the spreadsheet click the following link: FTSE 350 Stocks RS.xlsx and use the tabs at the bottom to see the different views by overall relative strength or by weekly RS change.

 

[Tryst]

Thanks for the charts, isatrader.

 

[isatrader]

Watchlist

One of yesterday's breakouts from the Daily P&F Breakouts and Breakdowns in S&P 500 thread was E*Trade Financial (ETFC) which looks to be making a Stage 2 continuation move and potentially is close to completing a larger two year base, and so could be a possible investor play as well.

 

[Tryst]

Re: Watchlist

One of yesterday's breakouts from the Daily P&F Breakouts and Breakdowns in S&P 500 thread was E*Trade Financial (ETFC) which looks to be making a Stage 2 continuation move and potentially is close to completing a larger two year base, and so could be a possible investor play as well.

High isatrader, I'm going to ask the same question as previously, although the answer may be the same I just need it confirmed

The 11.5 high in March 2012, although the 30 week MA dropped sharply prior it did level out around this time. Is it because it was too soon after a stage 4 that this price spike to 11.5 isn't considered a top/extreme high of a stage 1?

Also, the volume on the break out into stage 2b on the daily looks very suspect as we should be looking for at least double the average volume on the break out shouldn't we? Wouldn't this then make this share suspect to a failed breakout?

Thanks

 

[isatrader]

Re: Watchlist

The 11.5 high in March 2012, although the 30 week MA dropped sharply prior it did level out around this time. Is it because it was too soon after a stage 4 that this price spike to 11.5 isn't considered a top/extreme high of a stage 1?

The March 2012 swing high (11.50) or the previous swing high from October 2011 (11.69) would have been considered the top of the Stage 1 range back in the first part of 2012, but the Stages are an evolving target, as time is a factor to consider as well, as resistance becomes less significant as it gets older. As well as where price is in relation to the key moving averages.

You need to think of the 30 week MA as the baseline, and significant swing highs above it mostly should be used to define the range imo. So when price traded up above the 30 week MA in September 2012 and made a swing high (10.09) before falling 23.6% back into the range (7.70), it then needed a 30%+ move to break back above that high which is a significant range for most stocks.

Consider that ETFC has now been above it's rising 30 week MA for over six months, so how could it still be in Stage 1. You need to use the key moving averages as a relative guide, and adjust your levels accordingly. Like I said before, it takes time to learn, and the best way to learn is to manually mark up charts and go through the requirements that the book suggests.

One of those requirements is improving relative performance versus the index (in this case the S&P 500), and although the relative performance line doesn't have to be above it's zero line (52 week MA) when it breaks out into Stage 2A, it does have to be showing improvement and frequently I've found that the Stage 2A breakout point happens close to when the relative performance goes above the zero line.

Also, the volume on the break out into stage 2b on the daily looks very suspect as we should be looking for at least double the average volume on the break out shouldn't we? Wouldn't this then make this share suspect to a failed breakout?

It's not in Stage 2B, as that's used to define late in Stage 2. My personal way of deciding this is that I consider the first swing high above the Stage 2A breakout and pullback as early Stage 2 (Stage 2A) and then on the first continuation move, which ETrade is possibly making now, I would define it as just Stage 2. i.e. in the advancing phase. I would suggest that it only becomes Stage 2B once it's had at least two continuation moves higher imo.

As to volume, you are correct; it is weak. So it wouldn't be considered an A+ pick, but more of an average pick.

 

[Tryst]

Thanks for replying with your comments, isatrader.

with continuation moves, how do you personally identify them? Do you view a continuation as a pullback to a MA, or do you look for continuation based chart patterns such as bull flags or ascending triangles? (in an up move)

one thing I have been meaning to ask you based on your charts? Using the one below (which is taken from one of your earlier posts)...

http://www.trade2win.com/boards/att...s-stage-analysis-palladium_stages_21_9_11.png

...what is the 'performance' chart (the one in the middle)? Is this the relative performance, if so, what is it against?

The third chart 'relative performance', is this your Mansfield relative performance? Is the ticker GSPC specific to your apple based software? I am assuming it is related to the S&P 500? (the chart you posted today uses the $spx.

 

[isatrader]

with continuation moves, how do you personally identify them? Do you view a continuation as a pullback to a MA, or do you look for continuation based chart patterns such as bull flags or ascending triangles? (in an up move)

Point and figure charts is my preferred method for identifying continuation moves, as it's very clear, as P&F charts filter out the daily noise. But it's normally very clear on a weekly and daily line chart as well, as I'm looking for consolidations of multiple months in general or significant pullbacks towards the 30 week MA and reversal higher again and then continuation breakout. Minor consolidations don't really count imo, which is why I find P&F charts so good, as on a 3 box reversal setting, the minor moves don't register on the chart.

one thing I have been meaning to ask you based on your charts? Using the one below (which is taken from one of your earlier posts)...

http://www.trade2win.com/boards/att...s-stage-analysis-palladium_stages_21_9_11.png

...what is the 'performance' chart (the one in the middle)? Is this the relative performance, if so, what is it against?

Wow, that is one of my very early charts on here. Coming up to two years old now, so my understanding of the method has come on a bit, although that wasn't a bad early effort, as the Stage 4 move was sharp following that as palladium dropped to 535 within 3 weeks which was just past the swing target.

The performance section of the chart was simply a percentage line of the price action, which I found helpful in marking out the stages early on when I was learning the Stages.

The third chart 'relative performance', is this your Mansfield relative performance? Is the ticker GSPC specific to your apple based software? I am assuming it is related to the S&P 500? (the chart you posted today uses the $spx.

The relative performance on that chart was just the straight relative performance calculation versus the S&P 500 as you see on the ETFC chart I posted yesterday. But without the 52 week MA (zero line).

The ticker ^GSPC is from yahoo finance, and what they use to define the S&P 500. Whereas stockcharts get their data from interactive data I believe and use $SPX instead.

You'll find that lots of the different chart programs have their own symbols for the various indexes.

 

[Tryst]

Thanks, isatrader for the reply. P&F charts I may look into later as am currently learning chart patterns at the moment,

Anyone watch the Italy Japan game? Woah, great game!

 

[isatrader]

Major Stock Indexes Update

Attached is the updated major equity index charts and relative performance table.

I wrote last week about the Vix moving to the top of the relative performance table and that a close above 18.20 this week would move it into Stage 2A. Well we got that this week as the Vix moved higher and extended it's lead on the relative performance table. However, there were a number of interesting developments this week as well with the 30 week WMA momentum breaking down on the S&P 500 and clearer Stage 3 tops beginning to form in the major US markets.

The European markets fared worse however, with the Dax also in Stage 3, and the FTSE 100 breaking down below it's 2013 lows to move into early Stage 4A. Both of which can be seen with their declining positions on the relative performance table below.